Why Small Businesses Fail

Grains of Montana is a small restaurant and bakery franchise that opened up about a mile and a half from my house. It was located in the back of a business complex on a very busy corner between two Marriott hotels. It was difficult to see from the road but they did occasionally put up a roadside sign talking about breakfast.

They were open for several months and I finally stopped in (It took me a long time because I incorrectly thought they were Montana Wheat, another group of restaurants in Boise which were in and out and which served primarily high carb meals which I don't eat regularly. When I stopped in, I found out that they actually had a very extensive menu plus the best non-fat, sugar free Chai tea I've ever had. Two days later I went back and they were closed . . . for good. I decided to do a little research to learn more about the chain. I looked at their website and there are only three (now two) locations and the cost to open a Grains of Montana restaurant $551,00 - $684,000! Over half a million dollars to open a restaurant that serves pizza, sandwiches, and coffee drinks. I don't care how good it is, the amount you have to sell to make that make sense is tremendous, especially for a chain that isn't well known like McDonalds or Burger King or even Baja Fresh. But here is the kicker, after you spend all they say (from their website FAQ) this:

"What about other costs? There are additional costs such as advertising, licenses, utility deposits, uniforms, food and small wares inventory, and working capital. These costs should be $22,500 to $27,500. If you choose to obtain a beverage license, additional costs will be incurred."

Ok, here is the problem, if you spend $684,000 on building a restaurant, you need to spend more than $27,500 (less licenses, utility deposits, food and small wares inventory and working capital) on advertising! Come on, really? After you take away all of those other things you have maybe half of that left, to spend on advertising. This is a recipe for failure fast.

Here are some ways to kill your small business quickly.

1. Choose a poor location - Sometimes the best use of your marketing budget can be to get a better location than the one you are in. In the case of this restaurant, they were in what would appear to be a busy area but they were in the back of the strip mall area, hidden behind a Taco Bell, a Qdoba, and a Pita Pit.

2. Don't advertise - If you build it, it is very unlikely they will come if they don't know about you. I pay a lot of attention to ads because that is a big part of my business, other than their sign and one mailing, I never heard about Grains of Montana when they opened or after. I'm not going to say they didn't do more but if they did it wasn't effective at getting my attention.

3. Create poor advertising - If you let the advertising media (radio, newspaper, mailer, tv) create your ads they are very unlikely to be effective. If you use the same people who write, create and voice ads for every other business in your category, you'll end up with ads that look and sound like every other ad in your category.

4. Don't create an experience for people to remember - Sandwich/pizza/coffee restaurants are a dime a dozen. If you just think that your signage and decor are going to cause people to get excited you are wrong. If you think that your food alone will do it you are wrong. There are too many choices, many that is similar to yours. Having a good product or service isn't enough anymore, exceptional is the expectation.

5. Over invest in the business up front - Spend like you are a thriving business and don't act like a start up is one of the fastest ways to fail. In the case of the local Grains of Montana, the franchise is very new and the investment is very high. If you invest most of your money in opening and not enough in promotion you are most likely short lived.

So what to do to Instead?

1. Choose your location well - Especially in the case of retail and restaurants, location truly is everything, get in the best, most visible location you can find. It would appear that Grains of Montana would have been in a good location between two hotels but they were hidden from everyone but one of the hotels. If your business relies on impulse, fast repeat business and ease of access, spend more on that. In this case, not only were they hidden, they were hard to get into and out of.

2. You have to be seen to sell - Budget enough money and talent to impact your marketplace. Marketing is a marathon not a sprint, you need to have enough resources to last through opening. You also need to leverage current influence technologies like social media. It is important that you hit your potential market from as many different media as possible to create effective long term memories. You must also create a real reason to believe what you say is true and the experience had better prove it.

3. Create ads that matter - Ads have to cause people to stop and listen or read. You must spend time creating ads that are different and bring a different message to the market. The time you spend really thinking about what matters to your potential consumers and giving them a real reason to believe it is true will pay off in sale after sale. Don't use overused voices and talent in your ads. When you use voices on the radio or television that are on radio and television every day (for example disc jockeys or newscasters) you lose. Their voices are so over saturated that they simply move into the background. Hire the best talent you can afford and leverage it.

4. Create an experience to remember - People want to be amazed, amused, entertained, shocked, surprised, and thrilled. They want their expectation to meet the experience. Think about how you can create an environment, a culture, an experience that people can't forget. Not to beat a dead horse, but Zappos does it extremely well. Zero in sales ten years ago to over a billion in sales now. Experience is everything and it doesn't happen without a great deal of thought and dedication to implementing not only with the customer but empowering every member of your staff to be sure the expectation is met with an incredible experience.

5. Act like a bootstrapping start up - Even if you have the money to buy the franchise, ask yourself the question "If I hired the top consultant in the industry to help me start this business could I be as successful and save much more than I'll spend?" This is especially important in the case of buying newer franchises. If I were the Grains of Montana people I would have purchased as much used equipment as possible, I would have negotiated every dime of the contract and every single purchase. The more money you take away from the top line investment you add back to your ability to market sell, or extend operating capital. I'd also compare very closely the cost of hiring the best consultant or start up restaurant person for six months to help me create my own restaurant versus buying a new franchise with such a large investment up front. For a unique look at how Brandon Wright owner of Ultra Clean a disaster clean up company gets others to pay for his advertising right click here and choose save target as to download the mp3, this is a great study in how to make things happen and how to market well.

There is plenty of money to be made in this economy in any business but there is no room for silly mistakes. Small businesses have to focus on doing things right, doing them better than the competition, and doing them ruthless consistency.

Comments

[bob g allen]

Thank you Dave for the tips on how to get over the failure of busines. Awesome!!!

[Side effects of steroids]

yes, the conditions for small businesses are very difficult now

[MS.Small Businesses]

Thanks ! for these kind if tips
as of now many people has started to managed a small business right now..

[dll injection]

I would have purchased as much used equipment as possible, I would have negotiated every dime of the contract and every single purchase.

[nursing apparel]

excellent tips! this could really help us, thanks for the reminds Dave. We truly appreciate it. thanks!

[free cna training]

wow! long time no posting deserves a welcome back!

[bio-identical hormone replacement]

Stick this up on your refrigerator or bulletin board and use it as inspiration when you're feeling lazy.